Talbot Partners is a consulting firm with clients across the nation. Within the

Question

Talbot Partners is a consulting firm with clients across the nation. Within the company is a travel group that arranges flights and hotel accommodations for its over 1,000 consultants. The cost of operating the travel group (excluding the cost associated with actual travel such as hotel cost and airfare) amounts to approximately $800,000.
Recently, Talbot Partners has conducted an ABM study that has determined the following:

A. Each consultant takes approximately 20 business trips per year

B. On average, 30 percent of trips are rescheduled due to conflicts and poor planning.

C. The travel group employs 14 individuals at $45,000 each to book travel. In addition, there is a travel manager and an assistant travel manager.

D. Benchmarking with a Talbot Partners’ client indicates that the client incurs $30 cost per completed trip to book travel.

Required:

A. Evaluate the cost incurred by Talbot Partners compared to the benchmark cost.

B. Talbot Partners is planning a process improvement initiative aimed at reducing scheduling conflicts. What would be savings if rescheduling could be reduced by 50 percent? Assume that the only variable cost in travel services is the wages paid to employees who book travel.

Explanation / Answer

1. No of Business trips planned = No of consultanst x No of trips per consultant per year = 1000*20 = 20,000 2. 30% trips are rescheduled ie 30%*20,000 = 6000 trips So total trips booked by Travel Dept = 20000+6000=26000 Total variable cost of Operations of Travel dept = 14*$45000 = $630,000 (Travel Manager & Asst Mgr are Fixed costs) So per trip cost = Total cost/Total trips = 630000/26000 = $24.23 per trip .....(A) 3. When rescheduling is reduced by 50%, extra trips will be 50%*6000 = 3000 So Total trips = 20000+3000 = 23000 So No of trips booking reduced = 26000-23000 = 3000 So Saving = 3000 trips x $24.23 per trip = $72,690......(B) Thus effectively, Talbot can reduce employee nos to 12 from 14. $45000*2 = $90,000

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